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Almost every car company in the world relies on Renesas computer chips for its electronics. Unfortunately, a factory where Renesas chips are made is in Naka, Japan. Devastated by the March earthquake, the factory had to get quickly back into chips.

Chances are, unless you’re an engineer or an auto manufacturer, you don’t think about semiconductors on an average day (or even year), even though everything from computers and radios to LED lights depends on those powerful little silicon enablers.

Dan Mahoney, president and CEO at Renesas Technology America, Inc., thinks about semiconductors—and how to make them more efficiently—every day. He has for over 20 years. But Mahoney admits he’s never thought about them more than in the wake of the Japanese earthquake that rocked Renesas to its core.

That’s because almost every car company in the world relies on Renesas computer chips for its electronic systems. Renesas chips are made in several facilities in Japan, and one in Naka was devastated by the earthquake in March. For car production to continue, Mahoney had to figure out how to get his chip production back up and running fast.

The Big, Little Chip Picture

Japan, a Moody’s report points out, controls 90 percent of the world's production of bismaleimide-triazine resin, a substance that ends up in chips and circuit boards. Therefore, any disruption in the supply of components and materials in Japan will have a ripple effect, potentially causing shortages or interruptions that would cause factory operations like Renesas’ around the world to grind to an economically devastating halt.

Unfortunately, that’s exactly what did happen on 3/11. The disruption of production in Japan ricocheted around the globe. Sony shut down six plants, General Motors had to idle a small truck factory, while Toyota, Honda, Nissan and Mazda shut down 22 plants to keep workers safe. The Wall Street Journal reported that production in the global auto industry could be hampered for months by short supplies of parts. Insurance analysts estimated that the earthquake and resulting tsunami might end up costing the global industry up to $10 billion.

Mahoney knew that a summer-long sag could have serious implications for the company’s bottom line, not to mention the repercussions that its lack of component production would continue to have throughout the global industry. Yet, the damage to the manufacturing equipment, like in the clean room, was extensive. In the end, Renesas recorded losses of more than 60 billion yen (about 780 million dollars).

Getting Back to Business

Mahoney still can’t believe the "groundswell of support" that emerged to get the Naka factory humming again. "I am told that over the course of the recovery effort Renesas had 80,000 different people involved." That’s almost double the number of the company’s regular employees, he asserts. Employees voluntarily came back to work almost immediately, says Mahoney. "We urged people to put priorities on personal lives at home. [They showed us] a more committed, dedicated effort than we would have dared to ask for."

They were joined by approximately 40,000 people such as engineers from equipment suppliers who got busy repairing, restoring, or replacing machinery. Mahoney says Renesas got advice from other suppliers and in some cases from the government of Japan to facilitate recovery.

These people were not hired as permanent employees, Mahoney underscores, but in most cases were partners, suppliers, and customers who were already experts and offered invaluable assistance with no ramp-up time. "With customers, bad news doesn’t get better with age, so you start out with the facts. It teaches people that communication is the best way to approach a situation. It allows them to make best decisions."

Some of Renesas’ competitors helped, too, by agreeing to defer delivery of their own equipment. "They let us go ahead out of genuine sympathy, but the more important factor was that their customers were not buying products because of our shortages. That bred cooperation, teamwork, and mutual support."

Lessons for All

Mahoney believes this disaster has become a global, teachable moment for the entire electronics industry. "Everyone recognizes this same thing could have happened in Taiwan, for example. If it occurred there it would have had a much greater impact," he says, "Now everyone is stepping back and analyzing risk and applying to business to know how would we mitigate it in the future."

Does he think supply systems will contract, and become shorter or more local? No, says Mahoney, but he does believe this disaster will result in more flexible, robust, and redundant solutions.

"Experts have looked at inventory as an evil when they should have looked at reducing cycle time. There is cost and risk associated with building something that isn’t needed or becomes obsolete. On the other end [there is a risk] of supply continuity. Both are now viewed more equally."

Renesas lines were fully operational within three months, but what continues to ripple through the company and its customers is a morale boost that came from working through the damage to bring the factory back to production.

There was, he says, a "renewed sense of vigor and optimism. We ended up a much stronger company. No one would have predicted that the day after."